Could Check Point be undervalued right now?Here’s how the cybersecurity expert met all of its Q3 targets yet suffered a stock price correction. Show.
Check Point Software Technologies (CHKP -14.50%) stock fell as much as 16.8% on Tuesday, dragged down by a lackluster earnings report. Shares of the cybersecurity expert had recovered slightly, falling 13% by 2:30 p.m. ET.
How Check Point achieved all its goals and still disappointed investors
Check Point’s third quarter sales increased 7% year-over-year to $635 million, and adjusted earnings increased 9% to $2.25 per share. These results were completely in line with analyst expectations.
Management raised its full-year guidance target to around the midpoint of last quarter’s range. Q4 targets are also consistent with current Street View.
Merely meeting expectations wasn’t enough to keep Check Point’s stock price high. The stock went into full swing on last night’s earnings report, having risen 38% over the past six months, outperforming the market.
Check Point’s most bullish investors expected the company to steal market share from larger rival CrowdStrike, which suffered a costly outage in July. However, CrowdStrike’s first financial report reflecting its performance after the disaster did not support that theory. As a result, Check Point’s stock price fell, while CrowdStrike’s stock rose 3% on a relatively flat market day.
Does Check Point belong in Wall Street’s bargain bin?
Data security investors are still looking for clues about how the CrowdStrike event reshaped the market. Check Point CEO Gil Shwed said the company’s business flow in the Americas was strong, but declined to discuss the direct impact of the July outage.
So despite the disaster that seemed to change the landscape of the security industry in the first month of the third quarter, it’s business as usual. Check Point stock is still up 18% six months after today’s sharp correction. Despite its industry-leading profit margins, Check Point’s stock trades at a modest multiple of 25 times earnings and 8 times sales.
This is a real bargain compared to Check Point’s biggest rivals, but it must be said that the company’s growth seems slow compared to its peers. If high profit margins and a reasonable stock price are more important to your analysis than pure sales growth, then Check Point Software could be a solid buy today.
Anders Byland has no position in any stocks mentioned. The Motley Fool has a position in and recommends Check Point Software Technologies and CrowdStrike. The Motley Fool has a disclosure policy.
